Discussion:"Impotent" Depreciation and Basis of Asset
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Discussion Forum Index --> Tax Questions --> "Impotent" Depreciation and Basis of Asset
| 22 March 2007 | |
| Do you still subtract depreciation from the basis of an asset even in a year where the depreciation does not change the taxable income? Examples: 1) When employee depreciation on the Form 2106 does not go over the 2% AGI amt. 2) When taxable income is zero. If someone on SS and very little income has a rental loss every year and then sells the rental, would all those years of "impotent" depreciation have to be subtracted from the basis? Is doesn't seem right. | |
| 22 March 2007 | |
| At least with the rental, the suspended losses can be deducted in the year of sale, hopefully a gain. Why don't you just not figure depreciation on the 2106 once you determine that it is of no value? | |
Death&Taxes (talk|edits) said: | 22 March 2007 |
| This is an interesting issue which would only come up if the asset were sold and income realized. I have several people with huge deductions for union dues, sometimes 20-40K. Naturally AMT kicks in, but about every five years their union refunds these assessments, or parts of them, defining the amount of refund by years. I first ran into this for 1997 and had to call a specialist at IRS in Washington. He pointed me to a PLR on state tax refunds, which more or less meant recomputing each year without the refunded dues to see the actual tax benefit was realized. In this case the taxes saved are well worth it.
I am looking now at the depreciation a client, who plays in a symphony [employee], took on an expensive instrument he is selling this year, and I will adopt the same idea in this respect. | |
| 22 March 2007 | |
| D & T are you saying you are not going to reduce from basis the instrument's allowable depreciation in a year where there was no tax benefit? | |
Death&Taxes (talk|edits) said: | 22 March 2007 |
| No, I am saying if the instrument is sold, I must recompute the tax benefit from the depreciation for every year to see how much depreciation I must recapture, and note I am only applying techniques used for other matters of tax benefit. If the instrument is never sold, the adjusted basis on the books will eventually reach zero. | |
| 22 March 2007 | |
| What if the instrument is sold and it had been depreciated straight line for a small number of years and there was not a tax benefit of the depreciation in any year because it did not make over the 2% | |
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